In 2018, Estonia’s taxation system has been subjected to a number of changes. Here are the most significant of them:

  • A considerable leap in the registration threshold as a payer of sales tax from EUR 16,000 to EUR 40,000.
  • Reduction of the tax benefit on regularly paid dividends from 20% to 14%. For the first time, a reduced rate can be applied for dividend payments in the next year, taking into account that in 2018, the corresponding tax was levied at a rate of 20%. The benefit does not apply to the dividends received and already taxed. It also does not apply to the loans that are taxed as a hidden profit distribution. In 2019, the dividend amount will be taxed at a reduced rate, corresponding to one third of the dividends paid in the previous year. In 2020, this benefit will be applicable to the amount of dividends corresponding to one third of the dividends paid in 2019-2020, and in 2021 - to the amount equivalent to the average value of the dividends paid for the previous three years.
  • Introduction of new obligations for commercial organizations that issue loans to their stockholder, shareholder or member. We remind you that a commercial association pays income tax from such a loan, if the terms of the transaction indicate a possible hidden distribution of profits. In accordance with the adopted amendments, if the term for the payment of a given loan exceeds 48 months, the taxable person must provide the evidence:

    • intentions of the borrower to pay the loan;
    • the possibility of credit repayment

Confirmations must be submitted within 30 days at the request of the tax administrator.
The obligations extend to the loans, as well as conditions to them, issued/amended, starting on July 1, 2017. At the same time, to date, the law does not provide clear instruction on the implementation of the new rules.
There is also a requirement to provide the tax manager with a complete information on the issuance of loans / credits and their repayments by the 20th day of the month following the reporting quarter.

  • Adoption of 2% contribution rate on compulsory funded pension and the income amount, which is not subject to taxation by the income tax - from 0 to EUR 6 000 (for comparison, in 2017– EUR 2 160).
  • Introduction of the income tax on interest on deposits. At the same time, tax is not levied regarding the interest paid to the residents by the credit institutions - residents of the Member States of the EEC.
  • Increase of a monthly social tax rate from EUR 430 to EUR 470 and minimal social tax per month from EUR 141,90 to EUR 155,10.
  • The members of the governing and supervisory body, policymakers, individual-entrepreneurs, judicial officers, persons of creative industries and others, related to private entrepreneurs, are exempt from unemployment insurance premium.

Corporate tax in Estonia

Estonia is the most competitive tax system in the world, largely thanks to its 20-percent income tax and a "well-structured" personal income tax system.

The third annual International Competitiveness Fund measures how well the country's tax system contributes to sustainable economic growth and investment. The report looks at 40 variables of tax policy in five categories, including corporate income taxes, individual taxes, consumption taxes, property taxes, as well as the treatment of foreign exchange earnings.

According to the Fund, Estonia's position at the beginning of 2016 the list of the year is mainly the result of four factors, including "its low percentage of corporate tax, well-structured, 20 percent tax rate on personal income tax, property tax is only applied to the cost of land, rather than the real value of the property or capital, as well as a well thought out territorial tax system."

New Zealand and Latvia take the next two places in the list.

In contrast, France is at the end of the table due to its high corporate rate - 33.33 per cent of the taxes, "high and poorly structured" property taxes, and "progressively higher individual tax rates."

The United States this year is the fifth from the end as a whole because of its high corporate tax rate, worldwide tax system, as well as relatively high and poorly structured tax on personal income, dividends and capital gains.

Author: Sergey Panov

managing partner Finance Business Service

Corporate tax in 2016

UK - The Corporation Tax main rate for 1 April 2016 is set at 20%. This rate will fall to 19% for the year beginning 1 April 2017, and to 18% for the year beginning 1 April 2020.

Hong Kong - Profits tax levied at rate of 16,5% for companies carrying on business in Hong Kong (and 15% for unincorporated businesses) on relevant income earned in or derived from Hong Kong.

Ireland - Standard corporation tax rate on trading income is 12,5% and 25% on non-trading income.

Cyprus - Corporate tax rate is 12,5%. Certain types of income subject to Special Contribution for Defense at rates of 17%(dividends), 30%(interest) and 3%(rents).

Latvia – Rate is 15%.

Belize - All non-CARICOM residents, who have any taxable receipts originating from Belize, or in respect of any service provided in Belize, are required to pay business taxes as follows: Dividends - 15%, Insurance Premiums - 25%, Interest on Loans - 15%, Management fees - 25%, Rental of plant and equipment - 25%, Technical Services - 25%.

British Virgin Islands - No income tax.

United Arab Emirates - Income tax decrees currently enforced on oil and gas companies and branches of foreign banks. Oil and gas companies subject to rates of 50%55%, depending on Emirate.

Panama - Standard rate is 25% of net income, alternative minimum tax is 1,17% of gross taxable income.

Seychelles - Taxable income up to Seychelles revenue commission (SCR) 1 million taxed at 25%, income above SCR 1 million taxed at 33%. Businesses with turnover below SCR 1 million taxed at 1,5% on turnover, unless they opt for normal regime. Special rates apply to certain businesses.

Czech Republic - Rate is 5% for basic investment funds and 0% for pension funds (with certain exemptions).

Estonia - rate is 20%.

Author: Sergey Panov

managing partner Finance Business Service